Over the past few years, drilling activity and oil and gas production in New Mexico’s San Juan basin have been on the decline. However, the basin has recently benefited from improvements in horizontal drilling that could slow, or maybe one day reverse, these trends. What was historically developed as a vertical gas play has now attracted the attention of E&Ps large and small for its liquids reservoirs attainable through horizontal drilling.

The most active drillers of the basin have shifted away from drilling gas wells, and have instead focused their capital on drilling horizontal wells targeting liquid-rich reservoirs. The recent oil production growth the basin is experiencing is punctuated by the month over month production growth in June, July, and August of this year. The increase in oil volumes out of the region have been driven by an increase in horizontal drilling by two primary operators, WPX and Encana. Year to date, operators have drilled nearly three times the horizontal wells in the San Juan in 2017 as compared to 2016.

However, the current boom in drilling may be set to slow in 2018. In WPX’s 3Q17 earnings call, the company indicated plans to drop their current drilling rig and slow completion activity through the end of 2017, deferring the completion of 12 wells to 2018. WPX only intends to operate approximately half a rig in 2018, dependent on oil prices, to conserve capital, and focus on Delaware Basin development.

One factor that could change the development trajectory of the basin is the development of a new target reservoir. Currently, most of the basin’s activity has been focused on the Gallup although operators were testing several other formations in 2013 and 2014. In 2017, Encana drilled a six well program targeting the Mancos.

WPX has drilled the Mancos in the past, but since 2017 has been focused on the Gallup, while Encana’s 2016 and 2017 wells have all been Mancos. On average, the two regions yield similar IP rates, with the Mancos producing slightly more associated gas.

Overall, the San Juan has followed a similar trajectory to other legacy gas plays following the advent of the shale revolution. Horizontal drilling has overtaken vertical drilling, and producers with acreage in the basin have focused on exploiting liquids plays  using horizontal drilling and completion technology.

To see more about BTU Analytics’ production outlook for the San Juan and the rest of New Mexico, check out our Upstream Outlook.